Pass on Knight Therapeutics,Mackie Research says

Even with the approval of its opioid dependence management drug, commercial-stage pharma company Knight Therapeutics (Knight Therapeutics Stock Quote, Chart, News: TSX:GUD) is still just a “Hold,” says analyst André Uddin with Mackie Research Capital, who on Monday provided a client update with a reiterated target price of $7.79.

Created as a spin-off from Paladin Labs when the latter was acquired by Endo Pharmaceuticals in 2014, Montreal-based Knight Therapeutics on Friday announced it had received Health Canada approval for Probuphine, a sub-dermal implant which provides a six-month continual delivery of buprenorphine, an approved ingredient in the treatment of opioid dependence. Up until now, buprenorphine delivery has only been devised in oral and therefore self-administered forms, making Probuphine unique, according to Knight.

“The approval of PROBUPHINE™ offers new hope in the fight against opioid dependence, a devastating public health crisis in Canada,” said Jonathan Ross Goodman, Chief Executive Officer of Knight, in a press release. “We look forward to working with all stakeholders to make PROBUPHINE™ available to Canadian patients.”

Uddin says he expects to see Probuphine, for which Knight acquire the Canadian rights from Braeburn in February of 2016, to launch in the second half of this year, with conservative sales estimates for 2018 through 2020 at $200,000, $250,000 and $300,000.

The analyst says that Knight needs to source new business development opportunities — and at a reasonable price.

“Knight plans to invest up to $130 million in various ‘blue chip’ life sciences venture capital firms in order to source new products,” says the analyst. “Given that the biotech and pharmaceutical industries have a high risk of product development, there is no guarantee that Knight will recoup all of its venture capital investments. The venture capital firms Knight invested in have had at least medium to high single digit historical returns.”

“Our target price of $7.90 is an average of the values derived from an EV/Sales multiple valuation and a P/B multiple valuation,” says the analyst. “For the EV/Sales valuation, we apply a 4.1x EV/Sales to our 2018 sales estimate of $8.3 million. For the P/B valuation, we apply Paladin Labs’ lower historical P/B multiple (1.5x) to our 2018 book value estimate of $7.09/share. The P/B multiple excludes data after the Endo acquisition announcement on Nov. 5, 2013.”

Uddin’s $7.79 target price represents a one per cent return on investment as of publication date.